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India Makes Amendments To Finance Bill 2013
Taxand India discusses the key changes introduced by the Finance Minister of India.
Changes in Tax Residency Certificate (TRC) provisions to avail Tax Treaty benefits
The previous stipulation of TRC being a necessary but not sufficient condition, as introduced in the original Bill, has been deleted in the revised Bill. The revised Bill has also deleted the requirement of TRC to contain the prescribed particulars, as introduced by the Finance Act 2012. However a new provision has been inserted which provides that the non-resident taxpayer claiming Treaty relief shall be required to provide such other documents and information 'as may be prescribed'.
Beneficial tax withholding provisions for Foreign Institutional Investors (FIIs) and Qualified Financial Investors (QFIs)
A new provision has been introduced in the revised Bill which provides for a beneficial tax withholding rate of 5% for interest income earned by FIIs and QFIs (on or after 1 June 2013 but before 1 June 2015) from investment made in:
- Rupee denominated bonds of Indian currency; or
- A Government security.
Further, proviso to section 194LC of the Act introduced in the original Finance Bill 2013, whereby beneficial tax withholding rate of 5% was provided on interest income earned by a non-resident/ foreign company on investment in rupee denominated long term infrastructure bonds of an Indian company through converted foreign currency deposited in a designated bank account, has been deleted.
Discover more: Amendments to Finance Bill 2013
The deletion of the TRC provision will allay the fears of foreign investors and therefore encourage this inward activity. Extension of lower tax withholding rates on interest income earned by FIIs and QFIs from investment in rupee denominated bonds and government securities is a welcome move and is in line with the overall policy thrust on capital investment in the Indian economy. Multinationals operating in India should research the Finance Bill 2013 thoroughly in order keep afresh of all developments.